Small businesses are worried about PPP loan forgiveness (1)
The Paycheque Protection Program injected $ 525 billion in forgivable loans to small businesses from early April through early August. The program was
One of the reasons PPP was so attractive to borrowers was the ability to turn loans into grants. For this to happen, every borrower must complete a forgiveness request and submit it to their lender, who can work with them to strengthen it. Then the lender must submit the application to the SBA. The agency has up to 90 days to review it and make a decision. The SBA began accepting pardon requests on August 10.
How many businesses have applied for and received a loan forgiveness? Politics reported On September 29, the agency “received 96,000 forgiveness requests – which is less than 2% of total loans – but neither approved or refused any of them.” SBA spokeswoman Shannon Giles said on September 30 that the information came from a recent testimony given to the House Small Business Committee by Bill Manger, the SBA’s chief of staff and associate administrator for the capital access office.
Because of changing PPP rules, there is confusion around the forgiveness process, says Brian Pifer, vice president of entrepreneurship at advocacy group Small Business Majority, which has around 65,000 members in its network. Several business groups are backing two bipartisan bills that cancel PPP loans under $ 150,000 after the borrower fills out a one-page form, according to to the American Bankers Association. There is also broad support for relaunching the PPP, although the Brookings Institution suggests tax credits would be more effective, Bloomberg News
What should a business owner keep in mind about the forgiveness process? We spoke to Chris Levy, senior vice president of Pursuit, a community development financial institution that has funded more than 7,000 PPP loans totaling nearly $ 500 million to companies in New York, New Jersey and Pennsylvania. Her median loan amount was around $ 20,000. Levy says his institution paid money to “the smallest of small businesses, the ones that were really struggling.” Here is his advice:
1. Breathe deeply. Borrowers are understandably eager to complete the forgiveness request and put the PPP loan behind them, says Levy. You can request a loan forgiveness as soon as your lender begins accepting forgiveness requests. But you should wait because Congress will likely pass legislation that will make the forgiveness process easier, he says, including automatic forgiveness for P3 loans of $ 150,000 or less.
While some lenders will accept requests, Pursuit and many others are not yet. “The main reason we’re waiting is because we don’t think it’s appropriate not only for us to waste our time, but also for our borrowers to waste their time going through a super detailed pardon request that won’t do. that get easier. »Said Lévy.
2. Review the basics. You can get a loan discount on what you spend on payroll, rent, and other qualifying expenses during the so-called covered period – the 24-week period starting on the day you receive your P3 loan funds. The rules have changed considerably as the PPP has evolved: the minimum amount that must be spent on the payroll is 60% (it was originally 75%). You can spend up to 40% on non-wage costs like rent, utilities, and mortgage interest. The maturity of the loan is now five years; it was two years.
Once the 24 week period is over, you have 10 months to submit your forgiveness request to your lender, depending on this Faq of the SBA. You don’t need to make any payments until the SBA makes a decision. If only part of the loan is forgiven or if the request for forgiveness is denied, the balance owing on the loan must be repaid by the borrower on or before the loan maturity date.
3. Chew on this scenario. A business owner who received a P3 loan in April could wait until December to request a rebate through their lender. The SBA might not make a decision until February. The borrower would not make any payments during this 10 month period. “The adjournment period is essentially indefinite and will not be set until the SBA makes a decision,” Levy said. “It gives borrowers more time. “
4. Keep your cool. “The only thing we found throughout this process – the more patience you have, the better the rules are for you, ”says Levy. Keep payroll records as you normally do and communicate with your lender regularly, he says. He urges business owners not to go crazy. The 3508 EZ form simplifies the rules and should work for almost everyone, says Levy. “It really made it a lot easier for everyone to get full forgiveness. The forgiveness documentation is the same one they must have used when they first requested, he says. “If they got the loan in the first place, they can get forgiveness. “
More reading: Pursuit Faq
on forgiveness; Accounting Journal “PPP loan cancellation: what CPAs should do now” ; Politics”No forgiveness: small businesses still hanging on to bailout loans“; and Bloomberg’s law “When a Paycheck Protection Effort to Save Jobs Doesn’t”.
For more stories, strategies, and tips for Main Street business owners, check out the Bloomberg Businessweek Small Business Survival Guide.
(Update the sixth paragraph with the number of PPP pardon requests received by the Small Business Administration.)
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